Property market in the Philippines: Too hot or not?

Like a reoccurring nightmare of some trauma past, the bugbear of real estate better known by an appellation by another b tends to sporadically stir investors into frightening shivers during their sleep.

By Justin Calderon

The word “bubble” has become as feared as it is misunderstood in the property sector, a phenomenon that is inherently impossible to predict, resulting from excess supply in real estate that is set at mischievously deceiving high prices.

With the economic boom being seen in the Philippines – bred out of so-called Aquinomics, the idea of good governance lead by an anti-corruption impetus – nouveau wealth is appearing in the country. The 6.6 per cent growth in GDP posted in 2012 was largely led by domestic consumption, which contributed to 71 per cent of GDP.

Sound macroeconomic fundamentals such as these provide a compatible bedfellow for the property market. The Philippine Stock Exchange, the best performing bourse in Asia during 2012 by trade volume, is largely being boosted by an unprecedented injection into property development firms by domestic investors.

But when the “cult of GDP” decides to pop their corks of exuberance, market watchers fall into jitters, worrying that the party has continued for too long.

Gamers beware

“When you see exotic variants, that is a sign that cooling off is coming,” Managing Director Bill Barnett of C9 Hotelworks, a Phuket-based asset management and hospitality company, said alluding to the Philippine gaming subsector at the Euromoney Philippine Investment Forum on March 12.

The gaming segment of the tourism and real estate sectors has been the focus of a brighter spotlight by the public sector and equity market analysts alike. By end-2013, four casinos will cut red ribbons in the Metro Manila area, including Solaire, a mixed entertainment complex that opens on March 16 in Paranaque City.

From one lens, the ensuing tension in Asia that is part of its protean political fabric could derail growth in gaming. Racist Beijing restaurants are a good case in point.

China being the fastest source of global tourist growth, with the number of outbound tourists totaling 51 million in 2011, “geopolitics could be a big game changers,” Barnett warned. Additionally, the Philippines’ gaming industry, which is worth $2 billion compared to Singapore’s $6 billion and Macau’s $39 billion, is still heavily weighted on a corporate-centered model.

From the opposite angle, the Chinese market may be just provide excess to already met demand.

“The current capacity of the Philippine gaming segment is being filled by Southeast Asian tourists, including those from Thailand, Malaysia and Singapore,” said Vice President of Property Management Rigoberto Santos of Megaworld, a major property developer that owns a large stake in Resorts World, the country’s current entertainment complex heavyweight.

However, though the hot topic on the floors of the Philippine bourse, gaming is just a fraction of the property sector exuberance, albeit the highest yielding per square meter.

At the forefront of those demurring against the bubble criers is the evident prosperity of the middle class.

“Bubbles only happen when demand is artificial, but more than 50 per cent of the Philippine population is still below 26 years old, ergo there will still be home buyers,” Chairman and CEO Jose Antonio of Century Properties rebutted.

Overseas Filipino workers could have a further positive impact on the property market, smartly investing in stocks like never before.

“A decade ago, the typical Filipino abroad used to send money home to relatives to investment in a store or buy a trike. But when returning home and seeing that there was no trike or store, they realised that – low and beyond – this may not be the best investment model,” Antonio mused.

This is where property will come into play because “real estate is close to the heart of all Asians,” he concluded.

Abuzz with BPO

The BPO industry, the lifeblood of the Philippines’ surge in domestic spending, adds further firepower to the bullish property position.

According to Cristino L. Panlilio, the outgoing Philippines’ Department of Trade and Industry (DTI) Undersecretary, the BPO industry is due to hit the $15 billion mark by the end of 2013, up from $13 billion at the end of 2012. Furthermore, many commentators now predict that the Philippines, already the world’s leading voice-work BPO center, will continue this inexorable trend and surpass India by 2015, employing over 1 million Filipinos.

To meet that demand, more cubicles and headsets to adorn them will be needed.

Megaworld, the current landlord of 30 per cent of the BPO industry’s office space, the leading shareholder of real estate in the vibrant service sector, is moving aggressive to meet the projected increase in demand.

“We currently have close to 6 million square feet [in the BPO industry] and will be adding another 1 million by the middle of 2013,” Santos said.

Speaking well for the evolutionary transformation of voice-based BPO to knowledge-based processing (KPO) work, such as financial, IT and medical care services, Santos noted that there has been an influx in demand for KPO office space in the past two and a half years.

“At least 40 per cent of our BPO office space is part of the KPO industry,” he added.

Uncertain political landscapes have always been the case in the story of Asia’s economic rise. Yet despite the pageantry of mismatched personalities, Asia has steamed forward, often besting strong headwinds in the global economy. The Philippines looks no different.

Like a reoccurring nightmare of some trauma past, the bugbear of real estate better known by an appellation by another b tends to sporadically stir investors into frightening shivers during their sleep.

By Justin Calderon

The word “bubble” has become as feared as it is misunderstood in the property sector, a phenomenon that is inherently impossible to predict, resulting from excess supply in real estate that is set at mischievously deceiving high prices.

With the economic boom being seen in the Philippines – bred out of so-called Aquinomics, the idea of good governance lead by an anti-corruption impetus – nouveau wealth is appearing in the country. The 6.6 per cent growth in GDP posted in 2012 was largely led by domestic consumption, which contributed to 71 per cent of GDP.

Sound macroeconomic fundamentals such as these provide a compatible bedfellow for the property market. The Philippine Stock Exchange, the best performing bourse in Asia during 2012 by trade volume, is largely being boosted by an unprecedented injection into property development firms by domestic investors.

But when the “cult of GDP” decides to pop their corks of exuberance, market watchers fall into jitters, worrying that the party has continued for too long.

Gamers beware

“When you see exotic variants, that is a sign that cooling off is coming,” Managing Director Bill Barnett of C9 Hotelworks, a Phuket-based asset management and hospitality company, said alluding to the Philippine gaming subsector at the Euromoney Philippine Investment Forum on March 12.

The gaming segment of the tourism and real estate sectors has been the focus of a brighter spotlight by the public sector and equity market analysts alike. By end-2013, four casinos will cut red ribbons in the Metro Manila area, including Solaire, a mixed entertainment complex that opens on March 16 in Paranaque City.

From one lens, the ensuing tension in Asia that is part of its protean political fabric could derail growth in gaming. Racist Beijing restaurants are a good case in point.

China being the fastest source of global tourist growth, with the number of outbound tourists totaling 51 million in 2011, “geopolitics could be a big game changers,” Barnett warned. Additionally, the Philippines’ gaming industry, which is worth $2 billion compared to Singapore’s $6 billion and Macau’s $39 billion, is still heavily weighted on a corporate-centered model.

From the opposite angle, the Chinese market may be just provide excess to already met demand.

“The current capacity of the Philippine gaming segment is being filled by Southeast Asian tourists, including those from Thailand, Malaysia and Singapore,” said Vice President of Property Management Rigoberto Santos of Megaworld, a major property developer that owns a large stake in Resorts World, the country’s current entertainment complex heavyweight.

However, though the hot topic on the floors of the Philippine bourse, gaming is just a fraction of the property sector exuberance, albeit the highest yielding per square meter.

At the forefront of those demurring against the bubble criers is the evident prosperity of the middle class.

“Bubbles only happen when demand is artificial, but more than 50 per cent of the Philippine population is still below 26 years old, ergo there will still be home buyers,” Chairman and CEO Jose Antonio of Century Properties rebutted.

Overseas Filipino workers could have a further positive impact on the property market, smartly investing in stocks like never before.

“A decade ago, the typical Filipino abroad used to send money home to relatives to investment in a store or buy a trike. But when returning home and seeing that there was no trike or store, they realised that – low and beyond – this may not be the best investment model,” Antonio mused.

This is where property will come into play because “real estate is close to the heart of all Asians,” he concluded.

Abuzz with BPO

The BPO industry, the lifeblood of the Philippines’ surge in domestic spending, adds further firepower to the bullish property position.

According to Cristino L. Panlilio, the outgoing Philippines’ Department of Trade and Industry (DTI) Undersecretary, the BPO industry is due to hit the $15 billion mark by the end of 2013, up from $13 billion at the end of 2012. Furthermore, many commentators now predict that the Philippines, already the world’s leading voice-work BPO center, will continue this inexorable trend and surpass India by 2015, employing over 1 million Filipinos.

To meet that demand, more cubicles and headsets to adorn them will be needed.

Megaworld, the current landlord of 30 per cent of the BPO industry’s office space, the leading shareholder of real estate in the vibrant service sector, is moving aggressive to meet the projected increase in demand.

“We currently have close to 6 million square feet [in the BPO industry] and will be adding another 1 million by the middle of 2013,” Santos said.

Speaking well for the evolutionary transformation of voice-based BPO to knowledge-based processing (KPO) work, such as financial, IT and medical care services, Santos noted that there has been an influx in demand for KPO office space in the past two and a half years.

“At least 40 per cent of our BPO office space is part of the KPO industry,” he added.

Uncertain political landscapes have always been the case in the story of Asia’s economic rise. Yet despite the pageantry of mismatched personalities, Asia has steamed forward, often besting strong headwinds in the global economy. The Philippines looks no different.